| Wed 9 Jul 2003, 9:36 | | Results for the year ended 31 May 2003 |
|
Connection Group Holdings Limited -
Connection Group Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/005390/06)
(ISIN : ZAE 000016630)
(Share code : CCT)
Results for the year ended 31 May 2003
Turnover at R805m
Operating profit before interest up 36% at R33,6m
Headline earnings per share up 30% at 53,7c
Group Income Statement
Year ended Year ended
31 May 2003 31 May 2002 %
R"000 R"000 Increase/
(unaudited) (audited) (decrease)
Revenue 804 719 886 139 (9,2)
Continuing operations 804 719 858 670 (6,3)
Discontinued operations - 27 469 -
Cost of sales (598 024) (673 003) (11,1)
Staff costs (79 813) (91 307) (12,6)
Other operating expenses (83 073) (86 097) (3,5)
Operating profit before 43 809 35 732 22,6
interest and depreciation
Continuing operations 43 809 34 613 26,5
Discontinued operations - 1 101 -
Depreciation and (10 208) (11 015) (7,3)
amortisation
Operating profit before 33 601 24 717 35,9
interest
Net interest received 1 700 (564) -
(paid)
Profit before exceptional 35 301 24 153 46,2
items
Continuing operations 35 301 27 085 30,3
Discontinued operations - (2 932) -
Exceptional items (1 728) (18 875) -
Amortisation of goodwill - (697) -
Profit before taxation 33 573 4 581 632,9
Taxation (9 101) (2 378) 282,7
Profit after taxation 24 472 2 203 1 010,8
Attributable to minority (170) - -
shareholders
Net profit for the year 24 302 2 203 1 003,1
Continuing operations 24 302 20 874 16,4
Discontinued operations - (18 671) -
Headline earnings per share 53,72 41,24 30,3
(cents)
Earnings per share (cents) 51,84 4,70 1 003,1
Fully diluted headline 53,72 36,30 48,0
earnings per share (cents)
Fully diluted earnings per 51,84 4,15 1 149,2
share (cents)
Weighted average number of 46 875 46 875 -
ordinary shares in issue
(000"s)
Net tangible asset value 115,10 102,25 12,6
per share (cents)
Reconciliation of Headline Earnings per share
Year ended Year ended
31 May 2003 31 May 2002
R"000 R"000
(unaudited) (audited)
Net profit attributable to ordinary 24 302 2 203
shareholders
Adjustments:
Loss on disposal of fixed assets - 70
Discontinued operations - 1 430
Net after tax loss on sale of 877 14 931
investments
Goodwill amortisation - 697
Headline earnings attributable to 25 179 19 331
ordinary shareholders
Weighted average number of shares in 46 875 46 875
issue (000"s)
Headline earnings per share (cents) 53,72 41,24
Group Cash Flow Statement
Year ended Year ended
31 May 2003 31 May 2002
R"000 R"000
(unaudited) (audited)
Net cash inflow from operating 46 249 44 330
activities
Investment to maintain operations (5 125) (2 213)
Investment to expand operations (3 343) (11 581)
Cash inflow on disposal of subsidiary - 18 249
Purchase of treasury stock (19 678) -
Loan to employee share trust (16 253) -
Net increase in cash and cash 1 850 48 785
equivalents
Cash and cash equivalents at beginning 81 189 32 404
of the period
Cash and cash equivalents at end of 83 039 81 189
the period
Capex for the period 8 479 13 873
Group Balance Sheet
31 May 2003 31 May 2002
R"000 R"000
(unaudited) (audited)
Assets
Non-current assets 49 282 51 106
Plant and equipment 21 060 22 800
Non-current receivables 14 286 4 302
Deferred taxation 13 936 24 004
Current assets 222 986 195 165
Inventories 80 522 75 343
Trade and other receivables 59 425 38 633
Bank balances and cash 83 039 81 189
Total assets 272 268 246 271
Equity and liabilities
Capital and reserves 44 585 47 927
Share capital and premium 11 858 31 536
Foreign currency translation reserve 1 018 1 215
Accumulated profit 31 709 15 176
Minority shareholders 2 059 -
Shareholders" equity 46 644 47 927
Current liabilities 225 624 198 344
Trade payables and provisions 225 624 198 344
Total equity and liabilities 272 268 246 271
Group Statement of Changes in Retained Earnings
31 May 2003 31 May 2002
R"000 R"000
(unaudited) (audited)
Balance at beginning of the year 15 176 12 973
Adjustment to deferred taxation in
respect of trademark (1 500) -
Write down of loan to employee share (6 269) -
trust
Attributable profit for the year 24 302 2 203
Balance at end of the year 31 709 15 176
Group Statement of Changes in Shareholders" Equity
31 May 2003 31 May 2002
R"000 R"000
(unaudited) (audited)
Balance at beginning of the year 47 927 45 888
Attributable profit for the year 24 302 2 203
Exchange differences arising on
translation of foreign entity (197) (164)
Adjustment to deferred taxation in
respect of trademark (1 500) -
Write down of loan to employee share (6 269) -
trust
Set off of treasury stock (19 678) -
Balance at end of the year 44 585 47 927
Segmental Analysis
Year ended Year ended
31 May 2003 31 May 2002
R"000 R"000
(unaudited) (audited)
Revenue per operation
Incredible Connection 648 294 707 955
Enterprise Connection 153 667 154 744
Ultimate Connection - 19 275
Group Services 2 758 4 165
Operating profit/(loss) before
interest and depreciation
Incredible Connection 43 897 37 321
Enterprise Connection 4 516 (356)
Ultimate Connection - 2 342
Group Services (4 604) (3 575)
Commentary
OVERVIEW
The board of Connection Group is pleased to report record earnings for the 12
months to May 2003. We are further pleased to report that both Incredible
Connection and Enterprise Connection generated record returns and earnings.
Operating profit before interest rose by 36% and headline earnings per share by
30%. Revenue in Connection Group for the period was down 6,3% on a like-for-like
basis. The key driver of the revenue decrease was the deflationary effect of the
rapidly appreciating Rand and the four interest rate hikes which depressed
consumer spending on expensive durable goods. Sales of PC"s, notebooks and other
key categories, however, grew by in excess of 25% in unit terms over the period.
Both Incredible Connection and Enterprise Connection delivered strong
performances. Incredible Connection showed very good real earnings growth and
Enterprise Connection continued its turnaround, completing a full financial year
of profitability.
The above results were achieved notwithstanding a tough trading environment in
both the retail durable sector and the Enterprise IT solutions sector.
In the 12 month period to May the Group undertook a number of key initiatives:
The Group spent R19,7m on share buy backs and R16,3m on buying shares into the
employee share trust which now holds 7,6 million shares. All purchases were
funded from cash generated from operations.
Following the move to the retail sector, the Group embarked on a process of
finding an empowerment partner to acquire a substantial initial stake in
Enterprise Connection with a view to an outright purchase of the company.
Effective 30 April 2003, Connection Group concluded a transaction with
empowerment partners Canal Square Investments to sell an initial 50% stake of
Enterprise Connection, with an option to buy out the remaining 50% within one
year. The transaction allows the Group to positively exit from Enterprise
Connection whilst making a contribution to Black Economic Empowerment at a grass
roots level.
REVIEW OF OPERATIONS
Incredible Connection
Despite tough trading conditions Incredible Connection continued to show strong
growth in earnings of 22%, representing a profit before tax return on sales of
6%.
The year reflected four very distinct trading patterns; first quarter revenue
grew while the second quarter showed a decline as interest rate hikes took
effect. Third quarter sales were more buoyant achieving previous year levels
while the fourth quarter saw the first signs of a return to growth.
As a result of the unstable environment, Incredible Connection slowed its
expansion programme, preferring rather to enhance productivity from its existing
space.
Three new stores were opened in Windhoek, Polokwane and Klerksdorp, the latter
two only opening in the last quarter. Overall, Incredible Connection showed a
net decrease of 500 sqm in trading space as a number of oversized old store
leases were re-negotiated allowing Incredible Connection to reduce the store
size in order to optimise productivity. A new store was opened in Kolonnade at
the beginning of June with two further stores scheduled to open prior to
December 2003. This will take the total number of stores to 32.
Efforts to enhance operational efficiency paid dividends as Incredible
Connection made good productivity gains. Incredible Connection achieved turnover
per head of R120k, trading density of R39k per sqm and stock turns of eight.
Good progress was made by Incredible Connection in its key business imperatives.
Significant investments were made to enhance the IT infrastructure to
accommodate both current and future growth needs. Large investments were also
made into the development of human capacity in order to continuously improve
performance, ensure adequate succession and provide for future growth needs.
Training programmes were developed and conducted in line with the Skills and
Development Act in the areas of selling skills, technical certification and
product knowledge.
Furthermore a third iteration of management and potential management candidates
were enrolled on Unisa"s Retail Management Programme.
Enterprise Connection
Enterprise Connection had a good year generating profit before taxation of
R3,8m, at a 2,6% return on sales, representing a turnaround of some R6,8m.
The focus for the year has been the strengthening of margins and cost
containment in the face of flat revenues. Enterprise Connection completed 18
consecutive months and its first full fiscal year of continuous profit.
While corporate IT spending has slowed appreciably over the last year,
government remains the largest spender on IT services. This market opportunity
coupled with Enterprise Connection"s black empowerment credentials, manageable
cost base and good customer portfolio will allow it to succeed in the future. In
addition, much of the IT investment from Y2K is due to be upgraded and with some
exciting new products released by both Microsoft and HP, Enterprise Connection
is well positioned to take advantage of these opportunities.
FINANCIAL RESULTS
The financial results for the year ended 31 May 2003 have been prepared on a
basis consistent with the prior year annual financial statements and in
compliance with South African Statements of Generally Accepted Accounting
Practice. The results to 31 May 2003 exclude Ultimate Connection, which was sold
at the end of the previous year.
The Group achieved a 36% increase in operating profit before interest owing to
much higher earnings from Incredible Connection and an excellent turnaround from
Enterprise Connection. Incredible Connection was able to firm its margins as
well as reduce total operating expenses in excess of the reduction in turnover
levels. Enterprise Connection benefited from improved margins as well as a
significantly reduced cost base.
The Group earned interest of R1,7m in the current year compared to an interest
charge of R0,6m in 2002. The R2,3m turnaround is testament to strict working
capital management as well as the benefit of the proceeds on disposal of
Ultimate Connection.
The exceptional item of R1,7m relates to the disposal of 50% of Enterprise
Connection which was sold effective 30 April 2003. The notional tax charge of
R9,1m relates primarily to the movement on the deferred taxation account. The
Group still has R25m of tax losses available at 31 May 2003. Once again, the
Group was able to manage its working capital cycle extremely efficiently. This,
coupled with the ability to consistently translate operating profits into cash
meant that the Group generated R46m from operating activities.
During the year the Group spent R8,5m in opening 3 new retail outlets and
upgrading the IT infrastruture as well as R16,3m on shares for the employee
share trust scheme. The full dilutionary impact of the share option scheme has
now been covered by the Group"s holding in the employee share trust. In
addition, towards the end of May the Group acquired 8,1 million shares for
R19,7m which represents 17,4% of the issued share capital. Of these shares, 3,5
million will be cancelled with the balance kept as treasury stock. Net tangible
asset value per share has been calculated after taking into account the purchase
of the treasury stock.
Notwithstanding the above expenditure the Group had R83m of cash available at
the year end.
Capital commitments contracted but not provided for amount to R1,4m and capital
commitments approved but not contracted amount to R1,5m. All future capital
expenditure will be funded from existing cash resources. Operating lease
commitments payable within one year amount to R17,4m and those payable
thereafter amount to R40,8m.
PROSPECTS
Market conditions are expected to improve in the medium term and therefore we
are confident that the Group will continue to show real earnings growth.
In the short-term all the Group"s energies will be focused on delivering
superior results for the 15 months to 31 August 2003. Furthermore all
initiatives that began during this year to ensure the future strategy,
structures and processes are aligned will be brought to conclusion in
preparation for the new fiscal year. Connection Group Holdings will also move to
conclude the second phase of the Enterprise Connection sale. The sale of
Enterprise Connection allows the Group to deliver on its strategy of becoming a
focused retail organisation.
The board is confident that the impact of these strategic initiatives coupled
with a more buoyant market will ensure the Group is well positioned to embark on
its next growth phase in the new financial year.
Shareholders are reminded that the Group"s year end has changed to
31 August. Results for the 15 months ending thereon will be published by 30
September 2003.
For and on behalf of the board
S. Mulholland A. Fourie
Chairman Chief Executive Officer
Johannesburg
9 July 2003
Transfer Secretaries: Ultra Registrars (Pty) Limited, 11 Diagonal Street,
Johannesburg 2001
Directors: Stephen Mulholland (Chairman)*, Antonio Fourie (Chief Executive),
Wendy Appelbaum*, Pierre Joubert*, Andisiwe Kawa*, Grattan Kirk, Paul Moses,
Gnter Steffens* (*Non-Executive)
Registered Office: 6 Mellis Road, Rivonia 2128, POBox 2214, Rivonia 2128
Date: 09/07/2003 09:00:09 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
